NCLT approves Idea-Vodafone merger
NCLT has approved the merger between Idea and Vodafone with a rider that the newly merged entity would face any liability arising from the outcome of Vodafone India’s tax case. Vodafone is challenging the Indian government’s decision to retrospectively seek Rs22,100cr in taxes over its acquisition of Hutchison. This development is likely to positive impact on investor sentiment in the near term.
Idea Cellular recently announced a capital raising plan of Rs6,750cr through a preferential share allotment as well as a QIP. This capital raising was done to help cover the increasing losses of Idea Celllular and stay compliant with the merger agreement. As per the agreement, the net debt-to-EBITDA of the newly created entity was not to exceed 6.5 times. However, the Idea’s losses in 1HFY18 of Rs1,793cr pushed the merged entity’s net debt-to-EBITDA slightly above 6.5 times raising concerns over the merger.
Idea Cellular Ltd is currently flat at Rs107.15 from its previous closing of Rs107.15 on the BSE. The scrip opened at Rs107.2 and has touched a high and low of Rs110.3 and Rs102, respectively. The stock touched a 52 week high of Rs123.75 on 20-Mar-2017 and a 52 week low of Rs66.6 on 13-Jan-2017. Last one week high and low of the scrip stood at Rs118 and Rs106.4, respectively.
Idea Cellular, a wireless operator, is the third largest mobile service provider in India. In October 2017, Idea Cellular received approval from the shareholders and creditors of the company to proceed with its merger with Vodafone. The combined entity would have a subscriber base of ~408million with 22 3G/4G circles. The new entity would also have a total spectrum of 1,850 MHz. As per Management statements, the merger is expected to be complete in 2018.
We expect the company to report revenue de-growth of 2.6% over FY17-19E due to (a) 18.5% reduction in voice revenues over FY17-19E due to a ~48% reduction in voice revenue per minute, and (b) intense competition to reduce data rates by ~85% over FY17-19E. EBITDA margin is also expected to decline by 815bps to 20.6% in FY19E. The stock is currently trading at 12.4x FY19E EBITDA.
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Via:: Stock – India Infoline